Drafting Arbitration Clauses in Construction Contracts

Harvey J. Kirsh is an arbitrator and mediator based in the JAMS Toronto Resolution Center. He is also a member of the JAMS Global Engineering and Construction Group.

Most construction lawyers who specialize in transaction work acknowledge that they do not spend much time considering or negotiating arbitration clauses.  Should an arbitration clause be just a boilerplate provision, taken “off the shelf,” or should it be specifically negotiated and crafted for the particular construction project and to accommodate the parties’ requirements?

Some questions to consider:

• Should arbitration be mandatory or permissive?
• Should there be one or three arbitrators?
• Should the arbitration clause reference the Rules of a particular ADR institutional service provider, or should it be “ad hoc”?
• Should the clause cover claims by or against the parents or subsidiaries of the contracting corporate parties?
• Should the clause simply provide that all disputes will be arbitrated, or should it set out a detailed regime for the mechanics of the process?

One of the delicate balancing acts is between the “sin” of omission (i.e., omitting a crucial or useful element from an arbitration clause), and the “sin” of over-specificity (i.e., providing too much detail, which could produce a clause that is extremely difficult to put into practice).

Arbitration clauses may dictate which set of institutional arbitration rules are to be used, and parties are often reluctant to change them, even if they know they could likely negotiate something different or better.

Anecdotal but informative studies appear to indicate that many clients feel that negotiation is not open-ended, and that arbitration clauses are not a priority, particularly since there are often many other more significant business terms and conditions usually in play.

Ideally, arbitration clauses could and should be used to specify guidelines which would facilitate better and efficient management of the process. They can also include a fair but abbreviated timeline, and limitations on discovery and motions, all of which would serve to diminish delays and reduce cost. With more options on rules and expedited procedures available with nearly every ADR provider, clients can create a process the meets all their needs, both from a budget and time standpoint.